Texas Oil & Gas Fuels Economic Growth Amid Global Energy Challenges
Dean what impact are geopolitical issues
having on the oil markets well there’s
clearly a premium when you’re looking
and you can say glass app full or glass
in the way will markets and price and
uncertainties and the things that could
affect prices concerning run mainly so
the scenarios around that if that
Escalade that’s the fork in the road
that could affect global oil arkans in
subsi of way but baring that it is
pretty rear despite all of the
uncertainties from R Ukraine what’s
happening with the loss in Israel plus
Iran perer involved that we only have
dollar for Barr oiling why does I Ron
play such a large role in oil markets is
the amount of barrels they could put on
the market what caused them to be so
influential in the global market for oil
if you think about tack refinary complex
in Saudi Arabia it was Iran back hoties
from y the scent missiles that took
almost 5 million barrels per day of
export capacity by blowing up these
tanks in adk right the streets of four
moons going right by Iran they
threatened in the past mind those so if
you actually got into a wartime scenario
it’s substantial and it’s material
because so much of the carrier traffic
goes right through there so if you cut
off the ability to trade through the
strs four moves that has a huge Global
repercussion is this ever going to
change or just because of the
geolocation of Iran will they continue
to always play a large strategic role in
the global oil markets right it really
is that and it’s the fact that the
regime is fundamentally myth aligned
with with Saudi Arabia with Egypt and
with the West so as long as it’s viewed
as a pariah and there’s this evil remote
threat and these are really low
probability scenarios because it goes
down that road it would require greater
Global intervention exit but high impact
low probability kind of scenar is are
the things that people pay attention to
especially when trading and looking at
Financial Market activity to deal with
it it’s a prior that you don’t want to
kick it because the bees might come out
it’s just this weird seems like it’s a
very delicate just because the
disadvantages of starting a conf there
that could have not just on the oil
markets but on the global economy
because the global economy oil demand is
is set to achieve consecutive records in
2024 in 2025 the US Energy Information
Administration expects consecutive
Global oil supply records of a record of
102.4 million barrels per day in 2024
and 104.2 million barrels per day in
2025 what’s driving that growth and with
this Iran issue can the growth be met
there are a couple of layers to the
onion the growth is have two levels are
record levels and it’s notable that
between their March and April assessment
of glal oil markets that they increased
retroactively the assessment from last
year by 1% or around a million barrels
per day so this is material and that
says that 2023 on average in their view
is around 102 million barrels per day
now up for 101 this year it raises it to
102.9 also up from even what we had last
month which was 1024 so adding a half
million barrels per day this year and
then looking at next year the exiting it
was at 103.7 or 8 million barrels per
day it’s now up to Y 4.2 as you just
mentioned so these are substantial
upgrades retroactively cherries in and
affects the activity this in next year
but largely if you look at the
transaction and the way they changed
their projections for this and next year
it’s largely advancing growth that was
expected to happen by 2025 into this
year so this is an interesting doconomy
we’re looking at the headlines by the
day and the concerns of that economic
growth will there be monetary policy
changes cuts and interest rates that
might help cushion or stimulate activity
along the way this says that the they
are expecting in the base case more
activity this year than what they had
previously expected and that it’s
consequently slower when you’re getting
into 2025 in their view Cuts though on
the record are not going to happen the
CPI report came in as Bloomberg said hot
hot hot was hot inflation sticky well
what happens if we don’t get Cuts this
year we’re also running out of time for
the three projected Cuts maybe is there
one possibly on the table I think the
fed’s G have a very hard time of
orchestrating a soft against the way
things are looking I think your
listeners appreciate they’ve been
following the Outlook in our
conversations over the last couple of
years I’ve consistently said I believe
that price inflation would remain remain
sick and there are a lot of reasons for
that from energy transition to
Commodities to the emphasis on things
that with Workforce and Supply Coles at
various points haven’t been so easy to
clear up and I think there is a seasonal
aspect to what’s happening right now the
latest report for the US team 3.5%
year-over-year it shows an escalation
for two consecutive months it’s not the
direction that the federally want things
to go it’s consistent by the way with
increase spending increase industrial
activity see and it SS the economy is
strong and it’s strong not just on us
basis but on a global basis has been
upgraded by the IMF as we were the
national monetary fund as we were
talking about in the last quarter or so
so this is a good news any good problem
to have in the sense the global economic
growth and US economic growth are
continuing I do think because of the Deb
overhang both of the household and
corporate levels and the New York
Federal Reserve their credit survey
would say at the fourth quarter that’s
the latest now 17 and a half trillion
dollar worth of debt held by us
households that’s a record high that
delinquencies from auto loans to
mortgages to credit cards that they
picked up but they’re not at
recessionary levels they’ve just picked
up and that despite the fact that the
link delinquencies are up Auto
repossession and yeah evictions homes
those things are not up so people have
they’re stressed and they’re managing
but it’s an issue and if you have to
spend more to pay for interest costs you
don’t have as much discretionary income
so at some point there has to be an
issue where it’s downward pressure on
spending discretionary and corporately
we’ve talked about 5.5 trillion dollars
worth of corporate debt that must be
refinanced this year at rates that are
roughly three times higher than they
were at the 21 the naal monetary fund
the bank for international Settlements a
lot of the official agencies have talked
about the downside to Global growth as a
result of Corporation hitting this wall
the bank for international settlement
has an interesting research piece out
showing that this basically could
consume for for especially small and
medium siiz Enterprises as much as one
quarter their profits after taxes so it
is a big deal and it is serious headlin
to contined growth but we haven’t hit
the wall yet you’re still seeing
economic activity go along it at pace
and price inflation C CL Rising where
the FED as you said doesn’t necessarily
have to cut a lot but we need to see
where they go because I think that
there’s a very narrow bridge to walk to
make sure they continue to have strong
growth going forward and make sure it
doesn’t drop off I’m sure they’re
watching us I know they’re watching us
and this is the kind of thing where
they’ll figure out what if any Cuts will
be necessary to make sure they can
sustain growth and not have spiral that
comes off narrow bridge it’s a tight
roll there’s no other way to say it the
FED is walking a tight row these
corporations are going to have to
refinance their debt something’s going
to have to cut job loss they’re going to
cut jobs and consumers are strapped with
credit card debt they’re strapped with
Mortgage Debt they’re strapped with loan
debt some of not very good interest
rates then do things continue to
deteriorate and I’ll use the term do
things break at that point and then when
things start to break does the FED do
they or the FED just say we got to get
to that that 2% Mark we’re going to get
to that 2% Mark things are going to
break we’re going to get there well it’s
pretty clear that they back act off of
the 2% they’re putting more weight on
labor market activity right now the fact
that the labor market is still solid so
we added over 300,000 jobs last month
the employment rate sitting at 3.8% is
historically still low not saying that
they need to rescue the labor workk
phase so that’s really I think the
calculus that the FED is going by we’ll
see how markets respond if the FED does
not cut interest rates this year how the
oil markets react we we’ll get into I
think the relationship the inverse
relationship that’s a torically gone
between its interest rates as they
affect the strength of the US dollar and
an inverse relationship with price and
your biggest effect on the US dollar is
really that the TR is hot money chasing
interest rates so if I increase interest
rates I I attract a lot of money into US
dollars from the currencies the US
dollar appreciates the US dollar is
still sitting basically close to it
all-time high it’s not at the all-time
high a little err came out of it in the
last quarter or so but it’s not big
movement like you’d expect if they start
the path of rate cuds you’d expect other
currencies to appreciate around the
world people to move out of US Dollars
oil becomes relatively more affable
conversion work around the world will
will currency terms that stimulates
demand there’s also a commodity trading
aspect we’re I’m expecting interest rate
huts and might actually hedge that by
buying Commodities hence also
potentially supporting oil and other
commodity prices and notably here
despite good economic news overall we
have gold basically at an all-time high
crypto at an all-time high you have a
lot lot of things that are sometimes
bearish indicators that are at all-time
highs so it really is interesting icon
there’s a lot of things that don’t make
sense in this market there’s really no
way to describe it overall what role
does f policy play in the oil and
natural gas markets you said that they
ying and yang together but what role do
they really truly play together I mean
monetary policy isn’t meant to affect or
manage commodity oil prices so much they
are designed really that price inflation
where oil is still a big part of that
and the affordability of fuels
especially for transportation now for
materials increasingly important
agriculture as well all of these things
are tied together so that there is
causality that goes through the greater
system as a result of that and they have
to keep mind on where that is and we’re
talking about the interest rates the
other thing that’s quietly been
happening is during crisis time we’re
talking about quantity of vising
expanding the balance sheet it’s just
been the opposite where one liquidity
has been taken out of the market by the
fed and other central banks that’s the
other think is quietly happening that’s
part of why longer term interest rates
have been picking up despite the fact
that the near term interest rates have
basically F fund’s future is sitting at
5.3% and it hasn’t really budged much I
think people expected many more Cuts
coming into this year it’s clear that’s
not happening so as that happens it’s
interesting last week the first time
since really February that we’ve seen
this premium for lower corporate credit
quality start to go up about 8% if you
were comparing F fund’s features to
highi and that for our sector matters
because of corpor crit quality across
Independence generally not always being
invested great so you have to really pay
attention to that a lot of smaller again
companies that have to borrow are paying
higher rates for it what impact do
Global central banks have on the like
the ECB the bank of Japan what impact do
they have on the oil markets when they
decide to make a decision well think of
the central banks is trying to
coordinate so globally they’re basically
reacting to what beet is doing at this
point they’re not really moving ahead of
the curve the issue has been that the
FED raised rates so quickly and so much
so a lot of central banks follows to the
same extent hence that open a so-called
churry trade where I would borrow a Euro
translate the money into US dollars
invest in us treasuries maybe hedge my
foreign exchange risk maybe not but
either way I’m earning a real return by
and this is part of why the Dollar’s
been so strong this part of why as the
feds expected to cut that the a would
come back out of the doll there’s
interesting times that the the euro is
expected to go to a$1 12 by the end of
the year further strengthening some
estimates said it put as high as as a114
we export 60% of natural gas to Europe
what impact is that going to have with a
strengthening Euro declining Dollar on
the natural gas market from an export
perspective keep in mind that the gas
these contracts are largely traded in US
Dollars like oil is so if the dollar
gets weaker you’re now making natural
gas even more affordable given the fact
that we’ve had two consy of relatively
warm LS though we’re sitting here with
pretty full storage in Europe and in the
US at least above the 5year norm but the
range look at we’re sitting here for the
first quarter of the year with the
lowest inflation adjusted gas prices
ever for the United States this is
historically low so it actually should
be stimulative to demand and if monetary
policy follows that’s pressure to help
keep it in check natural gas demand is
growing 24 and 25 projected hit record
demand where’s that demand coming from
is that coming from data centers with
the increase of AI the gpus or or what
is driving the record demand for natural
gas like there are private projections
that would say oh I’m going to see huge
increases in data center driven demand
Aid driven demand for electricity in the
United States in Europe and Western
economies especially I think that’s real
I think that’s likely to stimulate
natural gas demand but on net the eia
the Energy Information registration
others Still project that advaning
economy natural gas demand is basically
flat in fact backing some out of power
out of the power sector in the United
States for ice
projection years where you’ve got
substantial growth especially Asia
Pacific and it’s not just India and
China by the way I’m the co of that rest
of the asia-pacific org economies are
really growing resoundingly in their
demand for natural gal they need it both
for power for industry is a processed
fuel they need it during winter season
for heating they don’t have a lot of
domestic supplies of so the EXP fors
that are flowing globally a lot of the
growth and this will continue to go not
just to Europe for security purposes but
to Asia Pacific the Middle East is also
growing substantially as is Latin
America so it truly is a global
phenomenon it’s driving natural gas to
the Asia one’s interesting is that going
into factories you mentioned the heating
for the households I don’t know how why
that be but there’s a big Factory growth
there’s a lot of factories popping up in
Vietnam there’s Apple’s now 10% of the
iPhones 1 and 7 now are manufactured in
India how large is the demand for
natural gas in India I I don’t know the
quantum exactly off the top of my head
but it’s been next to China in the
region the second highest growth and in
terms of substitute growth they’ve been
a major consumer of liquid Financial G
cargos coming in they’ve contracted
longterm the one suppli coming out of
Australia Guinea is continued to be
strong and again without the domestic
Supply as much they really do need their
rely the globalization of gas markets to
bring that in but from Bangladesh to
Taiwan to Singapore you’ve got the more
developed economies but from Bangladesh
to Vietnam you’ve got a lot of
industrial economies that are growing
and in terms of the heating demand just
to reinforce that whether it’s Japan or
South Korea if you get in Northern Asia
a cold winter just like us they bring in
a lot more gas to feed that so there is
especially in the developed economies
across the region a heavy Reliance on
natur gas to feed it is that Texas
natural gas I asked that because Texas
produced 27.8 billion cubic feet per day
of Dred natural gas last year is that
gas is going is the Texas gas going Asia
Pacific out of than 27.8 roughly half is
may be consumed in the state and we are
the largest industrial consumer of
natural gas with largest residential and
Commercial consumer of natural gas in
the us but we only need about half of
what we produce now on the amount the
other half that’s going externally
roughly half of that going to Mexico by
pipe and then the other half’s going by
LG so you’re seeing and some of it’s
greater than half that’s going at 60%
biology and out of that 70% of that’s
reasonably been going to Europe it used
to be that most of that would have gone
to Asia so it really is Russia’s Waring
Ukraine for the last couple of years
it’s abandoned the Regal balance of it
and over time maybe that sorts itself
out maybe not at least as far as we see
right now Russian supplies being off the
B market largely for gas with
northstream one and two pipelines having
been out of service you’re really
looking at continued needs and a good
demarcation of that in the last week or
two you’ve seen the headlines out of
Germany where they’re returning and
expanding and re now a natural gas plant
now they’ve coupled this with a
commitment that by 20 or 30 or 40 you
that they want to in the long-term
transition this to hydrogen but make no
doubt about it the fact that a very
industrial German economy is not
competitive without having energy and
right now a reliable affordable source
of energy is really important natural
gas is the way they’re going natural gas
is Affordable hydrogen’s expensive in
California it’s over $200 to fill up
your hydrogen car I don’t know what that
would be to heat your house obviously
California has energy problem there’s a
regulation coming down now where people
are going to be taxed for collecting
solar where does this policy end where
just because it seems to me that if
these policies are forcing consumers in
recessionary environment High interest
rates to pay more it’s only going to
accelerate potential economic downturn
and the energy cost could be a driver of
that especially in California California
this is interesting because they have
the highest rates in the nation they’re
about three times higher than what Texas
pays and it in Nationwide headlines but
over the last couple of years in
response legislation there they’re
implementing income household income
based electricity charges so imagine you
spent 20 or $30,000 to get your
household off of the grid and largely
self-supply electricity for your needs
but you’re still connected to the grid
well if you’re a higher income household
you’re going to be asked with the
compounding of fees to pay upwards of
$200 a month right now this is happening
this has been implemented now there’s
proposal from the Public Utilities
Commission J when you repeal it but that
hasn’t happened yet so far the washing
orders are by July that this goes in
everywhere so you are now as a healo
literally submitting your IRS tax return
to your utility $200 a month for the
privilege of just being connected
without any of your usage charges on top
of it this is quite substantial it does
affect affordability even for
$180,000 per year and higher is their
higher income bracket which in parts of
California with the cost of living there
is still maybe middle class for for many
over price of the country I want make
sure I heard you right on this you
submit your tax return to utility is
that right yeah and over the last year
the CPC held proceedings explicitly
where the the utilities the major ones
pg& San Diego Gas and Electric Southern
California Edison all three of them
petition to say I don’t want to be the
Arbiter try to determine somebody’s
outcome please use a third service so
then they haul Equifax in had them
testify and do a trial run and Equifax
said well we could only be about three4
accurate in predicting a household’s
income based on all they were using it’s
called the work number but basically
everybody’s payrolls by companies they
track this and to the extent that there
is aboveboard information that they can
track from corporations and tax chars
and things that are getting submitted
only with three quars accuracy could
they predict it so the CPU mandated that
the U ities expand the reporting
mechanism they use for lower income
programs and I can send you a a link to
pgn’s website but the first thing on
there is send us your IRS 104 and if
that’s not sufficient big letters we may
ask for more it it’s really astounding
no other place I’ve seen that’s
implemented charges based on electricity
and let’s be really clear the economic
theory of what’s efficient is you don’t
charge anybody more than the martial
cost to get them onto Network because
you want a positive Network effect with
oh and this is substantial some of the
articles about it have talked about one
or four California households being
behind on their electricity bills behind
and basically has systemwide cost the r
problem here is that the systemwide cost
in California has gone up prices become
unaffordable and as a result they’re
leaving back on the only constituency
they’ve got that can afford it which are
higher income households and it’s just a
cautionary tale I mean is it’s in bot
the electricity reliability Council of
Texas that covers over 90% of Texas
electricity we’ve implemented programs
that frankly from a wholesale Market
perspective alone costs almost $13
billion last year per the estimate for
the independent Market monitor for OT so
billions right these are and there’s
another ancillary service called peror
credit mechanism that they’re
potentially putting in place here this
year or implementing with another
billion dollars plus and their bit
headline this week about questioning
whether it’s actually more than a
billion use the Austin Powers Dr Evil
it’s not million it’s billions of dollar
we’re talking about this is Big Money
what’s next go to what’s next but then
the first I go to I’m going to put on my
economics app cyber security Insurance
that’s expensive then you have to get
dno insurance you have to get liability
insurance and now what’s that’s going to
be the next tax that’s passed along
because you have to cover the insurance
cost what happens when there’s a data
breach that’s going to open a a whole
can of worms and a lot of the companies
in the valley in San Francisco Northern
California very highly paid Executives
they’re mostly paid in stock based
compensation they’re not paid in cash so
now do you have to submit your your
stock base comp compensation as well as
your cash based compensation to pay this
then if you look at it from an energy
perspective why would anybody want to
put solar why would anybody want to try
and do sustainability go off the grid
and on the back side of that is this
going to be attack on the individuals
that bought an electric vehicle now
they’re going to have to pay even more
to charge it and does that lead to a
shift back to internal combustion
engines that use a little thing that
Californians consider dirty gas that’s a
derivative of oil is that where this is
going to go well California’s mandates
basically phase out and combustion in
the next decade or so so that’s going to
be an interesting challenge you raised
an interesting point in questioning
whether you’ve got any incentive to
invest in household efficiency at solar
panels to get off the grid if you’re
still going to have to pay for the grid
connection that is interesting I think
the idea of raising these fixed charges
is something they might be able to lower
the usage charges so they’re not three
times greater than the rest country so
maybe the usage compon it becomes
relatively more affordable at net net
the high higher income household is
basically attacks a lot you already have
the second highest tax rate in the
country you might as well Pass New York
and make it the highest tax rate this is
just astronomical but you’ve got a great
governor governor Abbott they’re moving
to Texas Tesla moved to Texas and I saw
Governor Abbott put out a tweet number
one employer in Austin is Tesla over
22,000 individuals work for Tesla Austin
have Oracle move headquarters there the
one that I was talking to an economist
the other day in California I said when
do they wake up and realize and he said
they’re not and I said okay let me ask
you this scenario what happens when
Wells Fargo and Visa decide to move to
Dallas oh that’s going to wake some
that’s going to wake somebody up bring
all those jobs to Texas it’s the Texas
economic engine that’s working in Texas
accounted for
42.7% of all us oil production in 2023
it’s highest level since 2020 you’re
creating jobs you’re creating oil and
not just jobs in Tech you’re also
creating jobs in the oil industry you’re
also one of the largest employers in the
trucking and Logistics Industries do you
see the trend of Texas oil demand
continuing to grow we don’t predict it
with Precision but yes because the
premian base in particular is your most
prolific and growing source of oil
supply in the United States it really is
the hot bit of activity and invation for
the industry so it’s very likely that
especially as the Colorados of the world
continue to struggle with whether they
even want a fossil fuel energy industry
there you’re continuing to see Texas and
I I was in Houston yesterday listening
to govern out he was at the conference
where I was participating and he
basically said we move at the speed of
business we respond to business they are
very proud of the policiy put in place
to attract all cor headquarters that he
mentioned and it’s growing and you’ve
got roughly 1,500 people a day moving to
tchas so this is a big deal because
demographically economically the
stronger getting stronger here and these
policies really do reward good policies
and behavor because the economy
strengthened the Texas economy is
strengthening and it’s a diversified
economy you’re you’re producing 42.7% of
all us oil how much of that oil is
exported overseas the short answer in
recent months and very close to the
average for last year is almost 4
million bars per just crude oil but
there’s almost that again of different
other products so refined products and
Natural Gas Liquids and when you look at
Global oil markets which is really the
lens through which we’re trying to
assess all of this the totality of all
the liquid supplies matter whether
they’re finished products or not a
Barrel’s a barrel and barrels are
relatively Fung so this makes chucking
basically almost 8 million barrels per
day filling out to Global markets texed
Imports of that million barrels per day
a little over of crude and other liquids
but they’re of different qualities so
for example you might take heavier oil
from Canada process it P quality
difference plenty but n it’s at least 7
million barrels per day you count for
all is the United States once again net
exporting oil again to the world we have
been and it’s interesting because it’s
long all of place about three weeks ago
we had net exports of 4.2 million
barrels per day of total petroleum and
that was the second highest weekly net
export total on record ever it it was
amazing but in today’s release coming
out this morning it’s all only down to
800,000 barrels per day so you really do
you’ve got holiday seasonality with
Easter Passover you’ve got a lot of
things that vary as you’re transitioning
now toward somewh driving season with
some products and the way they shift so
there is a season all to this you smooth
it out and in general we’ve been going
you net exports of a little over two
million barrels per day kind of ch on
but we need to watch it because if those
things drop off substantially then that
could be a sign of where Global markets
are going potential slowing concerns if
they remain super hot it’s just the
opposite that’s very interesting so low
export that’s going to mean a weak
global economy and a high export a
strong global economy High export are
going to tell you that there’s a big
Global Poll for energy especially oil
and as the economy goes this is B
Bedrock right as the economy goes so so
goes your demand for both oil and
natural gas in total energy because you
don’t get any form of economic growth
without having energy in some way shape
or form to supply it it could be
electricity but for TR and gas they
feating is is oil and gas the the
backbone economy absolutely over 90% of
your energy for transportation stems
directly from oil in the power sector it
might be close to 30% of its natural gas
on a global basis here in Texas toly
upon the time we’re talking 40 and 50%
is natural gas so it really is iCal both
to the state economy to the US economy
it’s huge pull for exports we’re
continuing to see not just because of
Russia’s War Ukraine but natural gas
exports grow the export capacity of this
we’ve got the debate federally about the
pause on potential prospective export
approvals which in our view is really
fundamentally bad Economic Policy it’s
bad for investment and frankly it’s bad
for their own environmental also try to
supplant coal and lower emissions
globally on all fronts growing natural
gas demand growing o Dem man it’s both
good for the country and for the world
terms of human and economic development
and making environmental progress where
responsible ways your help I’m an ask
you the contrarian question because I
love to get your opinion on this because
certain individuals want to remove all
traces of if we removed oil from the
global economy where are we do we even
have a global economy if oil was removed
no you really don’t and let’s be be
clear I mean despite people trying to
phase out and incentivize the
Alternatives and whether you look at
Alex Epstein his book fossil future talk
about Vil and his book on how the world
really works there’s really thoughtful
analysis that takes apart Transportation
Systems agriculture think of Agriculture
where 20 to 30% of your food cost off
the top is just energy related and most
of that is oil and natural gas between
Transportation fertilizer feed heating
through the winter what keeps your
turkeys alive in Minnesota or Mel Bean
base there right you got a lot of things
that really say you need to have oil and
gas and for a productivity standpoint
how it is that the world feeds 8 billion
people on the planet with the resources
that we’ve got it has only been made
possible by productivity so if you peel
back the layers on and both of these
authors actually upsteam sh both do they
talk about the productivity per gallon
of diesel for example in transportation
for feed for fertilizers all of the
progress that substantially made it so
that we have the global food system that
we do without modern fertilizers that
are mainly nitrogen based natural gas
based yeah you wouldn’t have the produ
so the global system the global economy
the world depends on having these
resources this this book was great how
the world really works B Gates actually
recommended on Gates notes it was a
really it was like textbook you’re back
in college The Way It Was Written but it
was really informative it was a really
balanced approach to where we are from a
global economy and the role that energy
plays in a global economy the the
economy of the world are interconnected
and you want to use the term oil oil is
the pre- broadband that critical to the
global economy here’s an interesting
thing to ask you to generate $1,000 of
GDP in 2023 the United States economy
required about 13 gallons of oil
compared with 14 gallons in China in how
and why well it’s interesting these are
calculations that I’ve done based on you
the official data sources but using when
you translate an economy into US dollars
you can either do it with or without
adjustments for the purchasing power of
of each currency and if we’re just
straight up using the actual exchange
rates this is what you get and it’s
interesting because there used to be a
much larger gap between the US and
virging work it’s a special agent and
the narrative was that China was growing
really fast and its oil intensity was so
high so therefore you you get this
unsustainable amount of oil demand and
energy demand as they grew but a decade
later sure we are almost at parity in
terms of the relative this isn’t
technical efficiency it’s economic
efficiency because it’s combination of
both the technical basis by which the
economy translates this IND value as
well as it just the growth of the
economy itself so if you’re thinking of
it as division in the numerator or the
economy in the denominator the the
economy continue to grow five to six on
the lower at this year as that grows
though it’s growing a lot faster than
the energy oil intensity of the economy
and energy intensity of the economies
come down the fact that Emerging Markets
I mean they’re they’re higher but
they’re not twice as high as they used
to be this says that the world is
converging it’s what you expect it says
that the fusion of Technology works and
that Energy Efficiency is a real
phenomenon that make as you continue to
grow the economy relatively more
efficient use of it says that other
things being equal you’re getting human
Economic Development that’s sustained
because so you really do have to think
of that Nexus of making human and
economic development over cons using
energy ways Energy Efficiency drives
economies and drives businesses look
this goes back to the Jack Walt days at
GE look at all the Energy Efficiency
that they were un aable to unlock and
their energy business did really really
well there and China wants efficiencies
that’s the way you see the public
statements from president CH of China
they’re trying to unlock efficiencies
any which way they can so they can
sustain their economy India is trying to
do it our economy is trying to do it
we’re all based on efficiencies what is
the larges glob oil demand as individual
economies it probably is still China but
India and developing Asia are right
there with it and keep in mind China
despite all of the push forication for
minerals for all of that it’s all Thea
bu strategy so they are still now the
largest importer of oil in the world 12
to 13 million barrels per day and
growing this just SS as the economy
continues to grow globally this is a
global issue it it really is all inwi so
we have to look at it in a Global
Perspective when we try to have US
policies that asymmetrically just say
okay we’re going to do this well we’re
going to do this but to what end when
you’re talking about subsidies to
Kickstart things you have to think uh
can you scale up the subsidy to a
societal level I mean that’s kind of
what we’re doing with the inflation you
know and keep in mind that in the way
that even on the place reduction Act of
2020 the Congressional budget office
only scores these bills for 10 years and
these credits extensively go in
perpetuity so that’s not paid for and
that’s the kind of thing that makes it
vulnerable in the longer term to really
think about from at a time when running
a primary government expenditure deficit
the US have over 30% of GDP in terms of
affordability debt sustainability
not having your debt grow faster than
your economy these are all the kind of
macros in the next deaders the United
States that’s a problem Jamie Diamond is
anual shareholder letter he he called it
out Point Blank it’s a problem that we
have to address I don’t see give you a
nice I’ll be nice next year approach to
the budget I don’t see it happening I
had dinner with a politician recently he
was the former speaker of the United
States house I’ll leave it who he was
very nice interesting conversation and I
said to the former speaker I said sir
when is common sense going to take place
he stands up and he gives me a hug he
said that’s the kind of thinking we need
he was telling me stories when he was
trying to balance the budget with new
and all these various different stories
and where they wanted Common Sense get
the noise the chat what’s right for the
country per country first but if we
don’t get there what’s going to happen
is this do the price of energy go up
long term as the debt keeps increasing
or any what impact on the energy markets
will this have with an increasing debt
load of the United States so look it’s
not the main you but there are some that
say regardless who went November us
presidential election either party would
expand spending in ways that might be
deemed irresponsibly unsustainable and
the fanal market reaction to that and
this is where us de gets down the
financial Market reaction to that could
be us and that’s where you get into a
scenario that people are most concerned
about being a thing that but it is the
traditional phrases we’re so pretty SCE
in the glue factory right now the US is
continuing and these things are good
until they aren’t good and why
politically it’s been really the third
rail to try to fix it because you you
unilaterally have to go out and take
entitlements or benefits away from
people stad less keep mind going back to
our early conversation even about the
job situation a lot of the job growth
this year and you mentioned it you know
tech companies as they’re becoming more
accountable and needing to pay attention
to profits they are cutting back they
produced a lot of jobs this year larger
companies in general and a lot of the
job growth has come from some service
Industries and government so these
aren’t the high value ad jobs it’s been
a lot lot of government spending that’s
helped hold that together in the
aggregate the macro picture looks okay
but the balance of show it’s growing and
where it’s growing how sustainable that
is and what that means as we get into
next year there are lots of things to
really contemplate it’s unfortunate
layoffs are not going to accelerate
Apple laid off the project I and the car
team recently there’s an analy report I
believe RBC or Wells Fargo mon sure of
the bank it said Tim Cook found his
discipline again more layoffs to come at
Apple as Apple tries to write the ship
those are high-paying job at the left
you look at the ones at meta we can go
down the line of companies those are
high paying jobs we’re going to have a
very very big problem if the FED can’t
land this ship you mentioned 12 to 13
million barrels per day that China’s
importing oil where is that coming from
cuz I read a report today in Bloomberg
where somehow Russia’s cut off from
Swift but yet they’re still trading oil
at record numbers is that is Russian oil
making its way into China or where are
those 12 to 13 million barrels a day
coming from well you what source would
be Saudi Arabia and OBC but Russia
absolutely is supplying and I think we
talked about the statistic in the past
where Javier blast of Bloomberg has
highlighted that the Malaysian exports
of crude oil to China are roughly three
times their productive capacity of crude
oil you know you’ve got these basically
at se markets where things get loaded
offloaded lended and Russia’s been
pretty masterful at continuing to find
that now have been headlines saying that
some of the secondary enforcement of
international Banking and other
regulations has started to Bight Russia
a little bit but usually what that means
means is you just have to go to
different buyers that maybe apply a
slightly different discount a Deeper
Discount to continue to place those
barrels into second tertiary refiners
economy but it’s happening and I have no
doubt in the Energy Information
Administration their projections of
global oil this is interesting because
they had said that there was there would
be very little if any reduction of oil
supply coming from Russia this next year
and the marchell look they had actually
scaled it back to be a few hundred,
barrels per day but now as of the April
Outlook they’re basically back to steady
as it goes for Russia so this says that
Russia’s going to script us regulations
just to go along Saudi Arabia for OPEC
plus cut you can’t stem off the fuel
Mark Rich all the the stories the king
of oil was a really interesting book
about what they did with the ships the
allil kept moving out of Iran it kept
moving the oil is always going to
continue to flow it’s always going to
continue to be a part of the global
economy there’s Broadband connectivity
and there’s oil both are critical
components of the global economy that
lead to economic
Dean in your opinion what are the key
things to watch in the oil markets over
the next quarter we’ talked about a lot
and we really do need to read the teis
on the economy again we’ve got a weekly
chart book in addition to a monthly
energy economics Outlook and a corly
view with a more polish sh look across
the economy oil and gas markets and we
look carefully at the indicators in this
weekly chart book and they don’t show a
huge drop off they show a continued
growth actually through the first
quarter momentum going into second
quarter here and that suggests that
energy continues to grow and in demand
as the economy grows and right now again
the base case is we we’re chugging along
here and we need to continue to monitor
for any terms that geopolitical
uncertainties I think everybody pays
attention to it but they have a
meaningfully derailed things and think
about it in terms of the growth quotum
I’ve given this comparison in the past
but due to one thing if the economy
grows roughly 3% on a go bases divide by
two and that means you need a million
and a half barrels per day more oil this
year last year now the economy is
growing closer to 2.7% so it’s a hair
under that but eia and IA the
International Energy agency the energy
Administration they both have growth
this year that’s 1.2 to 1.4 million
barrels per day even if you C
substantially off Global growth you
still eat more oil as long as the econom
is growing and not in some ad clim as it
was back in 2020 with pandemic so this
says that other things being equal if
the economy is growing I’m going to need
more energy we continue to see that it
could be stronger or weaker will affect
the price environment but from a demand
perspective there’s no question he is
there growing economies need oil we’ll
summarize it that way and for your your
turn Dean as we look to wrap up this
next quar when we have you back on in
June what would you like our listeners
and viewers to take away with them today
I I hope these conversations are helpful
in terms of educating on the things that
we really look at I hope it’s leading to
a dialogue about what the things there’s
no free lunch so to speak so we brought
up the California electricity issue when
you see policies locally or us-wide that
basically seem to raise colus and you
wonder where the money’s coming from
well ultimately there is a bill to pay
for these things and whether it’s a
federal bill or a state bill or a local
Bill they’re getting paid and they’re
getting paid sometimes through some
really perverse policies like we’re
seeing with these income based
electricity charges in California that
the cautionary tals understanding where
this can go and what it really means to
you as a consumer understanding the
patterns that go please uh refer
listeners to tech.org txo ga.org our
weekly level feel free to reach out on
link them I I love a dialogue on
musician I enjoy having you here every
quarter understanding the energy markets
is key to understanding the global
economy the future is bright the future
autonomous the future is a strong and
vibrant energy Market Dean thank you so
much for coming on the road to autonomy
autonomy economy today thanks so much
gra it’s always a great conversation I
really enjoy it
#AutonomyEconomy #RoadToAutonomy #OilandGas
In this insightful conversation, Dean Foreman, Chief Economist at the Texas Oil & Gas Association joined the Autonomy Economy podcast with Grayson Brulte to discuss the pivotal role the oil and gas plays in the global economy.
With a backdrop of geopolitical uncertainty, Dean provides an in-depth analysis of how geopolitical factors like the Russia-Ukraine war and tensions with Iran impact oil markets. He examines the increasing demand for natural gas, particularly from Asia and Texas’ position as one of the leading producer and exporters of oil and gas.
During the conversation, Dean and Grayson explore the implications of rising interest rates and inflation on the energy sector and the broader economy, including California’s controversial electricity pricing based on household income.
Additionally, Grayson and Dean discuss the U.S.’s growing national debt and how it could potentially impact the energy markets as there is an interdependence between economic growth and energy demand.
This comprehensive conversation is a must-watch for anyone interested in understanding the intricate dynamics of the global energy landscape and it’s profound influence on economic development.
Episode Chapters:
0:00 The Impact of Geopolitics on Oil Markets
3:51 Monetary Policy Impact on Oil & Natural Gas Markets
12:22 Growing Demand for Natural Gas
16:23 California Energy Policy
21:59 Oil & Gas Impact on the Global Economy
32:31 Impact of the Growing U.S. Debt on the Economy
35:02 China Oil Imports
36:55 Things to Watch in the Oil Markets
Recorded on Wednesday, April 10, 2024
► Subscribe https://www.youtube.com/channel/UCQgokf2oSrwae4CPeUQBmYw?sub_confirmation=1
——–
About The Road to Autonomy
The Road to Autonomy® is a leading source of data, insight and commentary on autonomous vehicles/trucks and the emerging autonomy economy™. The company has two businesses: The Road to Autonomy Indices, with Standard and Poor’s Dow Jones Indices as the custom calculation agent; Media, which includes The Road to Autonomy and Autonomy Economy podcasts as well as This Week in The Autonomy Economy newsletter.
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